Chapter 1 – Private Coverage

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KEY FACTS

More Americans have employer-sponsored health benefits than any other type of coverage. Over 177 million Americans were insured through their employer in 2015 (source).

In 2016, 56 percent of firms offer health benefits, similar to the 57 percent who reported doing so in 2015, but down from 61 percent in 2006. Nearly all (98 percent) large firms offer coverage to at least some workers, but compared to 55 percent of small firms (source).

Self-insured plans increased by 19 percent for midsized companies and 7 percent for small companies between 2013 and 2015, the period after many Affordable Care Act (ACA) provisions took effect (source).

Health insurance premiums are rising at a faster rate than employees’ salaries. Since 1998, premiums have tripled while wages have risen by only 58 percent. In 2016, the average annual premium for employer-sponsored coverage was $6,435 for an individual (similar to 2015) and $18,142 for a family (up 3 percent from 2015 and 58 percent from 2006) (source).

Nearly 3 million people neither qualify for Medicaid nor for marketplace subsidies and have remained uninsured (source).

As of February 2016, 12.7 million people had gained insurance through the insurance marketplaces, and 20 million people had gained coverage as a result of all ACA changes (source).

During the open enrollment period for 2017, 9,201,805 individuals signed up for ACA marketplace insurance in the 39 states that use the healthcare.gov platform (source). This compares to 9,625,982 who enrolled through healthcare.gov in the previous year (source). Data from all 50 states and D.C. won’t be available until a later date.

Twelve states and D.C. run their own marketplace, while the others are either run federally or as part of a state-federal partnership (source).

SOURCES OF PRIVATE COVERAGE

While millions of Americans get health care coverage through Medicare and Medicaid, most have private coverage through employers. Others purchase private insurance in the non-group market, either through marketplaces established through the Affordable Care Act (ACA), or directly from private health insurers.

Individual coverage purchased through federal or state marketplaces was the subject of significant attention during 2016, as several large insurers scaled back their offerings in some areas for 2017. Compared to an average increase of 2 percent and 7 percent in 2015 and 2016 respectively, 2017 will see an average premium increase of 25 percent for benchmark plans sold through federally-run marketplaces (source). That has prompted debate about possible policy action – from legislators in both parties – to ensure stability of the marketplaces. The election of Donald Trump, who campaigned on a pledge of repealing the ACA, has left the future of these marketplaces in doubt (source).

Still, the largest source of health care coverage is employers. Over 150 million non-elderly Americans are insured through their employer (source).

EMPLOYER-BASED COVERAGE

How We Got Here

During World War II, many employers had a hard time attracting prospective workers. After the National War Labor Board (NWLB) froze wages, employers were forced to come up with means other than salary with which to recruit workers. A 1943 board ruling deemed that employer contributions to insurance did not count as wages, and, thus, did not violate the wage freeze, so many employers began to offer health benefits. Labor unions became strong supporters of employment-based health insurance (source).

Employers continue to offer health benefits in order to recruit and retain workers, and they maintain that these benefits have a positive effect on worker health and productivity. Employers and employees also receive tax benefits from employer-based health care. The benefits are not included in employees’ taxable income and serve as a tax-deductible expense for employers. This exclusion is the federal government’s largest tax expenditure, estimated by Congress’ Joint Committee on Taxation to total $145.5 billion in 2015 and projected to be $769.8 billion between the years 2015 and 2019 (source).

ACA Changes

The passage of the ACA has influenced trends in employer-based coverage in numerous ways. The ACA allowed children to remain insured under their parents’ plans until the age of 26, required employers to offer health benefits to their employees or face a penalty, and created marketplaces through which employers could shop for insurance.

The ACA required employers with 50 or more employees to offer health benefit options to their employers or face a fine. The coverage must provide a minimum number of services and meet an affordability benchmark. Employers must offer insurance to 95 percent of their full-time employees and their children, the plan must cover at least 60 percent of all medical costs of care covered under the plan, and the total premium must not exceed 9.66 percent of the employee’s household income (source). This provision, known as the employer mandate, began to take effect for companies with 100 or more employees in January 2014 and companies with 50 or more employees in January 2015 (source). Penalties for employers failing to meet these standards are triggered when at least one full-time employee receives a premium tax credit for insurance on an ACA marketplace, and the annual penalties range from $2,260 to $3,390 per full-time employee, excluding the first 30 (source) (source).

The law also calls for an excise tax on high-cost employer-sponsored health plans, also known informally as the Cadillac Tax. The tax aims to eliminate overly expensive plans by assessing them 40 percent of the amount that exceeds certain affordability thresholds. The tax was scheduled to begin in 2018, but was delayed until 2020. Of the 53 percent of companies with over 200 employees that analyzed whether or not their offered plans would exceed the thresholds, 19 percent offered a plan that would be subject to the Cadillac Tax in 2018 (source). Over 10 percent of plans offered by big companies that would exceed the 2018 affordability thresholds are considered low-value silver or bronze plans (source).

Since passage of the ACA, more small-to-midsized companies have begun self-insuring, a practice that is common among larger employers. The important difference lies in who bears the risk of uncertain health care costs. Under both scenarios, employers contract with a third party insurer to deliver benefits. However, fully-insured employers contribute to the premium, and the insurer bears the financial responsibility of covering specified benefits, while self-insured employers accept the risk of uncertain health care costs.

Self-insured plans increased by 19 percent for midsized companies and 7 percent for small companies between 2013 and 2015, the period after many ACA provisions took effect (source).

Coverage Trends

The percentage of all firms offering workers health coverage remained fairly constant at 56 percent in 2016, although that is down from 61 percent in 2006. And, while 98 percent of large firms offered health coverage to at least some of their employees in 2016, only 55 percent of smaller firms offered coverage. Offerings of small firms with between 10 and 49 workers have fallen since 2011, with the trend preceding passage of the ACA. Firms not offering insurance cite cost as the most important factor (source).

Even when an employer offers health coverage, sometimes workers choose not to enroll. For example, workers may be ineligible, they may receive coverage through the employer of their spouse, or they may simply decline. Moreover, 72 percent of those workers who qualify are subject to a waiting period, although the ACA limited that waiting period to 90 days.

Some employers responded to the new regulation requiring them to offer insurance if they have over 50 employees by changing employees’ work status from full-time to part-time in order to exclude them from eligibility. Others (four percent of companies) lowered hiring numbers due to the regulation (source).

Even workers not covered by HDHP/SO plans are often paying higher deductibles than they had in the past. For the first time half (51 percent) of all insured workers in 2016 faced deductibles of at least $1,000 annually for individual coverage, including two thirds of workers at firms with less than 200 employees. The number of HDHP/SO enrollees comprised 29 percent of insured workers in 2016, up from 20 percent in 2014 (source).

Costs and Cost Containment

Overall, total health costs per employee increased by 3.9 percent in 2014 and 3.8 percent in 2015. They were expected to increase by 4.3 percent in 2016 (source). Costs were estimated to rise by 6.3 percent if employers made no changes to their current plans. Some employers are devising new systems and incentives to keep costs down, while others are simply placing more of the cost burden on the consumer (source).

In 2016, the average annual premium for employer-sponsored coverage was $6,435 for an individual (similar to 2015) and $18,142 for a family (up 3 percent from 2015 and 58 percent from 2006) (source).

Health insurance premiums are rising at a faster rate than employees’ salaries. Since 1998, premiums have tripled while wages have risen by only 58 percent (source). Employees rarely pay the full cost of their premiums, however. Firms differ in the amount of the premium they contribute toward employee coverage. In 2016, employers covered approximately 70 percent of employees’ premiums for family plans and 82 percent for individual plans (source).

Employers are also seeking to control costs through value-based benefit design, by incorporating value-based reimbursement and payment arrangements into the health insurance plans offered to employees. This includes establishing centers of excellence (COEs) for specialty services, implementing “high-performance” provider networks that agree provide care for a lower cost, and contracting directly with accountable care organizations (ACOs) and patient-centered medical homes (source).

Employers also are covering services through new venues, such as retail health clinics and telemedicine, sometimes providing financial incentives for employees to use these new options. Thirty percent of large employer plans included telemedicine benefits in 2015, up from 18 percent a year earlier (source).

Most large employers also workplace wellness programs, and 46.8 million employees in 2015 had one of these programs available to them. These programs can include help with tobacco cessation and weight loss, and other lifestyle or behavioral coaching, and in many cases, employers provide financial incentives for employees to participate (source).

Another trend is for large employers to open health clinics for employees on-site or near the worksite, both as a means to help control costs and to improve employee health (source). Among companies with 5,000 or more employees, 29 percent offered an on-site or nearby clinic in 2014, up from 24 percent in 2012 (source).

Employers also continue to transfer increased costs to employees. The amount the employee must pay for medical services before insurance picks up the cost, found most often in the form of deductibles, copays, and coinsurance rates, is rising. The average deductible was $1,478 for individual plans in 2016, up from $1,318 the year before (source).

Workers also must share the cost of their prescription drugs, and the amount they must pay depends upon whether the drug is brand name or generic, in addition to numerous other factors. Drugs are often assigned to different cost tiers, and co-payments and coinsurance vary by tier (source).

MARKETPLACES

Background

Under the ACA, insurance marketplaces, also called exchanges, have become the medium through which many individuals purchase health insurance. The insurance plans on the marketplaces are intended for people who don’t already get coverage through employer-based insurance, Medicaid, CHIP or Medicare, and many shoppers are eligible for tax credits to reduce the cost of insurance premiums. People offered coverage through an employer are permitted to shop on the marketplaces instead, but they are not eligible for premium tax credits unless the employer plan falls below an affordability standard (source). Individuals may also purchase insurance directly from a private carrier or broker, although people who purchase coverage outside of the marketplaces also cannot receive federal premium tax credits (source).

The ACA’s individual mandate requires all individuals to have insurance. While there are exceptions, such as for financial hardship and religious beliefs, those who fail to buy insurance must pay a penalty (source). The penalty may be assessed in two different ways. The uninsured pays whichever is higher of 2.5 percent of household income or a flat fee of $695 for each adult and $347.50 for each child in the family up to a maximum of $2,085 (source). The penalties for 2016 and 2017 are significantly higher than those assessed in 2014 and 2015 (source).

The Marketplace

As of February 2016, the Obama Administration estimated that 12.7 million people gained insurance through the marketplaces, and that a total of 20 million people had gained coverage as a result of all ACA changes (source).

The marketplaces offer individuals a variety of options, categorized in metal-named tiers – bronze, silver, gold, or platinum. There is an annual open enrollment period each winter, in which consumers may enroll in a plan, plus special enrollment periods during the rest of the year for people experiencing life events such as changing jobs or moving to another city (source).

The Obama administration had intended for each state to run its own version of the marketplace, but many opted instead to use the federally-run marketplace. As of 2016, 12 states and D.C. run their own marketplace, while the others are either run federally or as part of a state-federal partnership (source).

Once in a marketplace, an individual may be directed a number of ways. Those with incomes lower than 133 percent of the federal poverty line may be referred to Medicaid. If the individual’s income falls between 100 percent and 400 percent of the federal poverty line, he or she may be eligible for subsidies in the form of tax credits to help purchase a private plan.

Nearly 3 million residents of states that did not expand Medicaid fall within a so-called coverage gap, neither qualifying for Medicaid nor for marketplace subsidies (source). Federal subsidies for private insurance are only available to individuals with incomes above the federal poverty line, since the ACA envisioned providing Medicaid to people with incomes below that level. But a 2012 Supreme Court ruling made the Medicaid expansion optional for states (source), and as of July 2016, 19 states have not expanded Medicaid (source).

ISSUES & LIKELY POLICY DEBATES

Since January 2017, the Republican majority in Congress and the Trump administration have sought to repeal and replace the ACA, including the provisions that affect private insurance. On May 4, 2017, the House of Representatives passed its version of an ACA repeal and replace bill, called the American Health Care Act (AHCA) (source). However, Senate bill, called the Health Care Freedom Act (HCFA), stalled on July 28, 2017, as it failed on a floor vote with only 49 votes (source).

To avoid a filibuster that would require 60 votes to block, Senate Republicans sought to pass their bill under the rules of reconciliation, which can pass with just a simple majority.(source). But the Senate’s authority use reconciliation for an ACA repeal is expiring (source), the focus in Congress is shifting to smaller scale issues in the individual insurance market, such as whether the federal government should continue cost sharing reductions (CSRs) that help low income consumers with costs like deductibles and copays (source).

In addition to legislative efforts, the Trump administration has acted administratively to modify the implementation of the ACA. In February 2017, the Centers for Medicare & Medicaid Services issued a proposed rule that would shift some regulatory oversight to the states and that would both shorten the open enrollment period and tighten the rules for special enrollment (source). The proposed rule was designed to make it more appealing for insurers to remain in the ACA marketplaces in 2018 (source).

Access and affordability remain top issues for consumers, driven by rising premiums and limited health plan choices in some areas (source). That has prompted debate about possible policy action – from legislators in both parties. In 2016, UnitedHealthcare, Humana and Aetna announced that they would cut back participation in the marketplaces in 2017, in some areas leaving consumers with only one choice of health plan (source).

The average monthly premium of a healthcare.gov individual policy was $476 in 2017, 105 percent higher than the average pre-ACA individual market premium in the same states in 2013, which was $232. This is due in part to higher insurance coverage requirements in most states after the passage of the ACA. In other words, these more expensive 2017 policies typically cover more than their 2013 counterparts (source).

Only about half of marketplace enrollees view their premiums as affordable. However, many of those who view policies available on the marketplaces as unaffordable are unaware that they qualify for subsidies (source).

The impact of continued health care provider and insurance plan consolidation is also likely to continue to receive attention moving forward. In 2015 Aetna announced its intention to merge with Humana (source), and Anthem similarly did so with Cigna (source). In July 2016, the U.S. Justice Department filed a lawsuit to block both mergers, citing concerns that the combinations would harm competition nationwide and would give too much market power to three largest insurers (source). In January 2017, a federal judge ruled in favor of the Justice Department, blocking the Aetna-Humana merger (source); the two insurers opted to drop their merger plans rather than appeal the ruling (source). In February 2017, the Justice Department again prevailed in its suit to block the Anthem-Cigna merger (source). Anthem appealed the ruling, and so far the Trump Justice Department has followed through on the prior administration’s efforts to block the merger (source).

EXPERTS

Drew Altman, president and CEO, Kaiser Family Foundation, 650/854-9400

This guide was made possible with the support of the National Institute for Health Care Management (NIHCM) Foundation. This edition of the Sourcebook also had initial support from the Robert Wood Johnson Foundation.